Follow the Money: Methods for Identifying Consumption and Investment Responses to a Liquidity Shock

25 Pages Posted: 19 Nov 2013

See all articles by Dean S. Karlan

Dean S. Karlan

Yale University; Innovations for Poverty Action; Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Adam Osman

University of Illinois at Urbana-Champaign

Jonathan Zinman

Dartmouth College; Innovations for Poverty Action; Jameel Poverty Action Lab; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: November 1, 2013

Abstract

Identifying the impacts of liquidity shocks on spending decisions is difficult methodologically but important for theory, practice, and policy. Using seven different methods on microenterprise loan applicants, we find striking results. Borrowers report uses of loan proceeds strategically, and more generally their reporting depends on elicitation method. Borrowers also interpret loan use questions differently than the key counterfactual: spending that would not have occurred sans loan. We identify the counterfactual using random assignment of loan approvals and short-run follow-up elicitation of major household and business cash outflows, and estimate that about 100% of loan-financed spending is on business inventory.

Keywords: loan use, consumption, investment, liquidity constraint, liquidity shock, fungibility, microcredit

JEL Classification: D12, D22, D92, G21, O12, O16

Suggested Citation

Karlan, Dean S. and Osman, Adam and Zinman, Jonathan, Follow the Money: Methods for Identifying Consumption and Investment Responses to a Liquidity Shock (November 1, 2013). Yale University Economic Growth Center Discussion Paper No. 1034; Yale Economics Department Working Paper No. 126. Available at SSRN: https://ssrn.com/abstract=2356587

Dean S. Karlan (Contact Author)

Yale University ( email )

Box 208269
New Haven, CT 06520-8269
United States

Innovations for Poverty Action ( email )

1731 Connecticut Ave, 4th floor
New Haven, CT 20009
United States

Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab ( email )

E60-246
77 Massachusetts Avenue
Cambridge, MA 02139
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Adam Osman

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

Jonathan Zinman

Dartmouth College ( email )

Hanover, NH 03755
United States
603-646-0075 (Phone)

HOME PAGE: http://https://sites.dartmouth.edu/jzinman/

Innovations for Poverty Action

1731 Connecticut Ave, 4th floor
New Haven, CT 20009
United States

Jameel Poverty Action Lab

E60-246
77 Massachusetts Avenue
Cambridge, MA 02139
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
95
rank
261,216
Abstract Views
913
PlumX Metrics